Corporate Banking Resolution Of Stressed Assets
Corporate Banking – Resolution of Stressed Assets
1. Meaning of Stressed Assets
Stressed assets include:
| Category | Meaning |
|---|---|
| SMA (Special Mention Accounts) | Early signs of stress |
| NPA (Non-Performing Assets) | Default > 90 days |
| Restructured Loans | Terms modified due to stress |
2. Legal & Regulatory Framework
Resolution of stressed assets is governed by:
RBI Act, 1934
Banking Regulation Act, 1949
RBI Prudential Framework for Resolution of Stressed Assets (2019)
SARFAESI Act, 2002
Insolvency and Bankruptcy Code, 2016
3. RBI Prudential Framework (2019)
Key features:
(A) Early Identification
Lenders must identify stress immediately after default.
(B) Inter-Creditor Agreement (ICA)
Lenders sign ICA
Majority decision binds minority
(C) Resolution Plan (RP)
Plan may include:
Change in repayment schedule
Conversion of debt to equity
Change in management
Sale of exposure
4. Tools for Resolution
| Tool | Description |
|---|---|
| Restructuring | Modify loan terms |
| Refinancing | Replace old debt |
| One-Time Settlement (OTS) | Lump-sum settlement |
| Change in Ownership | Strategic investor takeover |
| IBC Referral | If resolution fails |
5. Role of IBC in Stressed Asset Resolution
IBC acts as a deterrent and final remedy if out-of-court restructuring fails.
6. Prudential Norms
If resolution is not achieved within prescribed timelines, lenders must:
Make additional provisions
Classify as NPA
7. Landmark Case Laws
1. Swiss Ribbons Pvt. Ltd. v. Union of India (SC, 2019)
Recognized IBC as a key mechanism for resolving stressed assets.
2. Dharani Sugars & Chemicals Ltd. v. Union of India (SC, 2019)
Struck down RBI’s 2018 circular mandating IBC referral without case-specific analysis; emphasized need for statutory backing.
3. Innoventive Industries v. ICICI Bank (SC, 2017)
Strengthened creditor rights in default-based insolvency trigger.
4. Essar Steel v. Satish Kumar Gupta (SC, 2019)
Demonstrated successful resolution of large stressed asset through IBC.
5. Jaypee Kensington Boulevard Apartments Case (SC, 2021)
Complex resolution involving multiple stakeholders.
6. K. Sashidhar v. Indian Overseas Bank (SC, 2019)
Reinforced creditor commercial wisdom in accepting or rejecting resolution.
7. Vidarbha Industries Power Ltd. v. Axis Bank (SC, 2022)
Recognized judicial discretion in admitting insolvency despite default.
8. Key Issues in Stressed Asset Resolution
Delay in decision-making
Divergence among lenders
Evergreening concerns
Valuation disputes
Promoter interference
9. Objectives of Resolution Framework
✔ Preserve viable businesses
✔ Reduce NPAs
✔ Improve credit discipline
✔ Protect banking stability
Conclusion
Corporate stressed asset resolution combines:
RBI-led restructuring (preventive)
SARFAESI enforcement (recovery)
IBC (structural resolution)
It represents a shift from recovery to revival-oriented restructuring, with courts supporting creditor-driven processes.
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